Teaching notes for

Cavusgil et al.: Doing business in

emerging markets, 3e

Chery goes to Brazil – Challenges for an

automaker in an emerging economy
Viviane Salazar and Salomao De Farias

Summary

The automotive industry has a relevant participation in the world economic structure. This
industry is very concentrated because it requests a lot of investment in technology, R&D, new
product development, advertising, and assembly plants. It also operates in a global scale or
serving specific geographic regions, through assembly plants, which can produce the same types
and models of vehicles in different locations. Since the 1990s, the flow of FDI (foreign direct
investment) in emerging countries has grown. And automobile manufacturing has been shifted
to these countries to take advantage of lower labour costs, government incentives and
increased consumer market. In South America, Brazil is an important automobile producer
country with more than 50 assembly plants (motors, cars and trucks) taking advantage of its
industrial infrastructure, transportation, communications, qualified labour force and
technological capacity.

Since 2009, China is the largest Brazilian trade partner and several Chinese companies
have invested in Brazil. In 2010, Chinese investments started to grow and China became the
second largest source of FDI in Brazil. One of those FDIs was made in the automobile industry.
Automotive companies – JAC, Lifan, Effa, Geely and Chery – entered Brazil with the promise of
offering a cheap and complete car to a huge potential consumer market. But in spite of the

© S Tamer Cavusgil, Pervez N Ghauri and Leigh Anne Liu 2021 | SAGE Publishing 1
Cavusgil et al. | Doing Business in Emerging Markets, 3e | Teaching Notes

increase of the Chinese investments in the country, the Chinese brands face social resistance in
Brazil because they are still perceived as of poor quality. This case analyzes the internalization
process of Cherry in Brazil and explains the joint venture with the Brazilian Company CAOA as a
strategy of reducing the country effect on the consumption of Chinese cars.

Learning objectives and key issues

The case achieves the following objectives:

 To stress the need to understand the competitive, political and legal context in the
internationalization process
 To show how the “right” partner in an international joint venture can be a key to success
in a foreign country
 To comprehend the advantages and disadvantages of a different entry modes (exporting,
greenfield, joint venture)

Discussion questions

1. Did Chery choose the right approach to enter the Brazilian market?
2. What are the main challenges a company entering the competitive Brazilian automotive
market could face?
3. What recommendations would you make for the new company CAOA Chery to succeed in
the Brazilian market?
4. How can political risk damage country relationship? Brazilian president Jair Bolsonaro
and his sons have attacked the Chinese government on issues related to COVID-19.

Background reading

Learning through the international joint venture: lessons from the experience of China’s
automotive sector: https://doi.org/10.1093/icc/dtr015

Chey international webpage with information and data about the Chinese car maker:
https://www.cheryinternational.com/#

© S Tamer Cavusgil, Pervez N Ghauri and Leigh Anne Liu 2021 | SAGE Publishing 2
Cavusgil et al. | Doing Business in Emerging Markets, 3e | Teaching Notes

Multimedia

Brazil automotive update: Industry prospects 2020 - Audio interview:

https://auto.economictimes.indiatimes.com/news/industry/brazil-automotive-update-
industry-prospects-2020-audio-interview/74768625

Chinese and Brazilian companies unite to launch new SUV:

https://www.youtube.com/watch?v=wKveoNDffsQ

Brazil-China relations under Bolsonaro:

https://www.youtube.com/watch?v=6L9WBri0j9I&pbjreload=101

© S Tamer Cavusgil, Pervez N Ghauri and Leigh Anne Liu 2021 | SAGE Publishing 3